U.S. Jury Awards US$10 M to Ritz-Carlton Bali Owners

Landmark U.S. Ruling May Have Impact on Hotel Developments World-Wide.

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(2/3/2008)

Karang Mas Sejahtera (KMS) the Indonesian owners of the Ritz-Carlton Bali Resort & Spa have been awarded US$10 million in punitive damages by a Maryland Federal (U.S.) jury who found the that Ritz-Carlton - part of Marriott International, had violated a non-competition exclusivity agreement by participating in the development of a second hotel in Bali, the nearby Bulgari Resort.

After a 14-day trial, the Maryland jurors ruled that the 2006 opening of the Bulgari Resort, Bali - operated by Italian Jewelry company Bulgari Spa with Marriott represented a breach of a "non-competing" clause agreed by Ritz-Carlton with the Indonesian owners of the Bali property. The suit, originally filed in 2005, charged Ritz-Carlton Co. LLC - a Maryland registered company with fraud, breach of contract and breach of fiduciary duty.

A report published in the Maryland Daily Record quoted, William A. Brewer, an attorney for KMS as saying: "Ritz-Carlton continuously lied to our client about the nature of the involvement of the Ritz-Carlton employees, standards, and assets in the building of what was a competitive brand next door."

The complaint charged the hotel operators with using names, assets and resources in opening and operating the Bulgari property.

Brewer also alleged that "Ritz Carlton abused its privileges as operators of the KMS hotel and used confidential and proprietary information owned by KMS to plan and develop the competing Bulgari hotel while concealing those profits from KMS."

According to a published report in the Wall Street Journal, lawyers for KMS successfully argued that the Bali Bulgari Resort unfairly benefited from Ritz-Carlton's name in marketing and promotion when it opened its 59 villa luxury hotel, just 5 kilometers up the beach their client's property.

The court case, which awarded KMS $382,304 in compensatory damages together with US$10 million in punitive damages, also allows KMS to terminate its contract with Ritz-Carlton.

An upcoming hearing will determine what additional injunctive relief and attorney fees are due to KMS.

The lawyers for KMS said the owners have yet to decide if they will end their relationship with Ritz-Carlton. KMS attorney Brewer told the Maryland Daily Record that "we'll ask the judge to restrain those ongoing breaches of loyalty by Ritz-Carlton and make sure they don't continue."

The Maryland court ruling may have far-reaching impact against the ever-increasing tendency of large hotels to form large conglomerates encompassing a range of hotel brands. Robert LaFleur, a lodging analyst quoted by the Wall Street Journal said: "One of the ways hotel companies have continued to expand is through brand extensions. They'd either modify an existing brand or come up with a new brand, and that would be seen as a way to get around territorial restrictions that franchisees or hotel owners have."

Both The Wall Street Journal and The Maryland Daily Record report that Ritz-Carlton declined comment on the case.